Prudence and Opportunity: A Shadow Federal Budget for 2013

Alex Laurin and William Robson
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Alex Laurin: C.D. Howe Institute

C.D. Howe Institute Commentary, 2013, issue 375

Abstract: Canadians can be proud of their country’s relatively strong recovery from the 2009 slump, but should not be complacent. Canada’s fiscal situation is strong only by comparison with the dire situations in other major advanced countries. Our national saving rate is too low to support needed investments. And economic and fiscal risks abroad cloud the outlook. The C.D. Howe Institute’s 2013 Shadow Budget protects Canada in the near term by accelerating the federal government’s planned return to budget surpluses, and in the longer term with reforms to boost economic growth. This Shadow Budget builds on the economic and fiscal outlook in the 2012 Fall Update by scheduling an end to budget deficits by fiscal year 2014/15. The key focus of the plan is further control of government spending. It proposes to reduce the number of federal employees from planned levels, and limit mounting compensation costs per employee by raising employee contributions to pension and other under-funded benefits. It would also trim net subsidies to Crown corporations and “tax expenditures” – programs delivered through the tax system. The Shadow Budget also proposes reforms that have low or zero net costs that will boost Canada’s economic dynamism. Among them is a revenue-neutral one-percentage point shift from personal-income to consumption taxation, which will promote income growth and help provincial finances. It also proposes reforms to Equalization and Employment Insurance that will make these programs more supportive of regional development. Other growth promoting measures will liberate trade and investment, level the retirement playing field, and reduce the role of tax considerations in businesses’ inter-provincial and international investment decisions. By building on Canada’s recent relative success, this Shadow Budget will protect Canadians from the risks of excessive government borrowing, and promote the private prosperity and public programs that ensure Canadians’ economic future.

Keywords: Fiscal Policy and Tax Competitiveness; Federal Budget (search for similar items in EconPapers)
JEL-codes: H60 H61 (search for similar items in EconPapers)
Date: 2013
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